Carpenter Inc.estimates warranty expense at 2% of sales.Sales during the year were $4 million and warranty expenditures were $44,000.What was the balance in the Warranty Liability account at the end of the year?

Question

Quizplus · Accepted Answer

The balance in the Warranty Liability account at the end of the year is the amount of estimated warranty expense that has not yet been incurred. Since Carpenter estimates warranty expense at 2% of sales and sales were $4 million, the estimated warranty expense for the year was $80,000 (2% of $4 million). However, the actual warranty expenditures during the year were only $44,000. This means that $36,000 ($80,000 - $44,000) of the estimated warranty expense has not yet been incurred and should be recorded in the Warranty Liability account. Therefore, the answer is C.